Key Takeaways
- You can negotiate a better reference in a settlement agreement, including agreed wording and limits on what your employer can say to future employers.
- Including a clear, written reference clause is the best way to prevent negative, inconsistent or verbal references undermining your future job prospects.
- Our solicitors routinely secure bespoke reference clauses, ensuring wording covers both written and verbal responses to third-party or informal reference requests.
- Employees often overlook key settlement agreement clauses such as confidentiality, tax-free ex gratia payments, restrictive covenants and robust reference wording.
- If your employer breaks the agreed reference clause, you may have a legal claim for breach of contract and our SRA regulated solicitors can advise on next steps.
- Settlement Agreement Lawyers offers free legal advice to employees, as your employer pays all fees for reviewing and negotiating your settlement agreement.
- Booking with our solicitors means rapid, same-day remote appointments UK-wide and guidance on negotiating for improved references and financial terms before you sign.
- Our service is rated Excellent, with over 1,400 five-star reviews of our lawyers on Trustpilot, Google and other platforms.
Can you negotiate a better reference in a settlement agreement? Key clauses UK employees often miss
If you have been offered a settlement agreement, you may wonder: can you negotiate a better reference in a settlement agreement? The answer is yes—it’s often possible to secure specific, positive reference wording as part of your settlement, and having it agreed in writing is the best way to protect your future job prospects. For a settlement agreement to be legally binding, you must receive independent legal advice, which is almost always paid for by your employer, so there is usually no cost to you.
It is crucial to get expert advice before signing, as you are waiving your ability to bring any future claims—and many employees miss important clauses on references, confidentiality, ex gratia payments, and restrictive covenants which can impact your next career step. Our solicitors provide this legally required advice at no charge to you, reviewing your settlement agreement, helping you negotiate stronger terms, and ensuring your reference clause is watertight for both written and verbal requests.
In this article, you’ll find out how to secure the best possible reference, what key clauses employees often overlook, and practical steps to avoid reference disputes in the future. For clear, same-day advice, you can call our solicitors on 0800 054 1144 or book your settlement agreement advice online.
Always check that the settlement agreement covers both written and verbal references. Without this, line managers or HR might provide different information to recruiters by phone, which could disadvantage you even if the written wording appears safe.
What is a settlement agreement reference and why does it matter?
A settlement agreement reference is a specific written promise from your employer about what reference they will give if a new employer, recruiter, or other party requests one in future. In England and Wales, these reference clauses can be critically important for employees moving jobs, especially after redundancy, performance disputes, or workplace conflict. Standard employment law does not require employers to provide a reference at all, but once agreed in a settlement, the employer is contractually bound to produce the promised wording and content.
Settlement agreement references commonly set out that only “factual” information will be provided, such as your job title, start and end dates, and sometimes reason for leaving. More tailored agreements may require a “personal” or “positive” reference, which can help your future job prospects. However, employers usually resist highly detailed or subjective reference wording, especially where there are ongoing disputes about conduct or performance.
A well-drafted reference clause reduces the risk of a neutral or negative reference undermining your chances in future opportunities. Employees often underestimate the ongoing impact of a poorly negotiated reference, which can silently close doors long after leaving. Including a properly negotiated reference clause provides peace of mind and sets clear expectations.
A client leaving a financial services role following a restructure faced a generic, factual reference offer. Our solicitors negotiated for a short statement of the client’s professionalism and reliability to be included, which successfully reassured future recruiters and contributed positively to their next job application.
Why is independent legal advice required? Understanding s.203 Employment Rights Act 1996
Under section 203 of the Employment Rights Act 1996, employees in England and Wales must receive independent legal advice before a settlement agreement can be legally binding. Without the written certificate from a qualified solicitor, the agreement cannot waive your statutory rights, such as claims for unfair dismissal, redundancy pay, or discrimination compensation. This mandatory advice protects employees from being pressured into giving up claims without understanding the consequences.
The solicitor’s advice must be independent and given by a qualified adviser, usually a solicitor who is insured to give this advice. Our solicitors review your offer, explain what rights you are giving up, and make sure every clause—including the reference wording—is clear, fair, and enforceable. We confirm all sums such as redundancy payments, notice pay, benefits, and holiday pay are fully included.
Employers are required to pay for this legal advice. Our solicitor’s fee is capped at your employer’s contribution, so there is no cost for the advice when you are the employee.
A client’s draft agreement did not mention a £5,000 discretionary bonus and wrongly treated a large part of the leaving payment as taxable. By raising these issues during the advice stage, our solicitors secured a higher, mostly tax-free payment and a fair reference clause.
How to negotiate a better reference in a settlement agreement (UK step-by-step)
Negotiating a better reference is possible in most UK settlement agreements, but your success depends on preparation and timing. Employers have no obligation to provide a reference, but once agreed via a settlement agreement, the wording is binding. Here’s how to approach this negotiation:
- Review the draft reference clause for restricted, vague, or potentially negative content.
- Identify whether you want only a “factual” reference or wish to include achievements and personal attributes.
- Propose your preferred reference wording to HR or your employer.
- Negotiate—employers are often more open to a positive reference in redundancy cases than for performance-related exits.
- Insist the agreed reference applies to both written and verbal requests, including third-party checks.
- Ask our solicitors to review for hidden limitations, such as employer “standard policy” statements which could override your agreed clause.
Negotiating reference wording before you leave gives you the strongest position. Changes become far more difficult once an agreement is signed.
Never accept or resign based on a settlement offer without securing your desired reference clause. Once you have left, your bargaining power drops sharply.
Practical steps to secure strong reference wording
Begin by preparing suggested reference wording yourself or with our solicitors. This draft should include your job title, dates of employment, and a brief positive summary (if appropriate).
Submit your proposal to HR, making it clear you expect this wording to appear as an attached schedule to the settlement agreement. When internal politics or performance concerns limit employer flexibility, focus on strictly factual but favourable statements – such as “demonstrated reliability and professionalism”.
Request that the agreed reference wording is used in all circumstances, written and verbal. Clarify which individuals may give the reference, especially in large organisations.
A technology sector client with a contested performance review secured a reference stating their employment dates and responsibilities, plus a statement on their technical competence. Our solicitors included a clause restricting all reference responses to a named HR official only.
Written vs verbal references: covering informal, HR and third-party requests
Recruiters often call HR or former managers for verbal feedback. If your settlement agreement covers only written references, your agreed wording can be undermined by informal calls or “off-the-record” comments. To prevent this, the agreement should require all employer representatives—written or verbal—to stick to the agreed reference content.
Ask for the settlement agreement to name who can give references and to bind everyone (including managers and third-party background checkers) to the wording in the agreed schedule.
If you have had conflicts with a particular manager, specifically request that only named HR or legal contacts provide a reference going forward. This reduces the risk of inconsistent or damaging off-the-record feedback to future employers.
Model reference clause examples to use in settlement agreements
Reference clauses should be clear and enforceable. Here are examples you can adapt:
- “The employer will provide any prospective employer with a reference in the form attached as Schedule 1. The employer shall not depart from the wording of this reference in any respect, whether in writing or verbally.”
- “The reference will be limited to confirming the employee’s name, job title, dates of employment, and reason for leaving as redundancy.”
- “No other information shall be provided to third parties other than that set out in Schedule 1, unless required by law.”
A thorough clause might state that neither HR, nor managers, nor anyone else may provide inconsistent information to any third party.
A client in retail secured an agreement for all references (written and verbal) to be handled only by HR, using standard wording plus a highlighted statement on professionalism. The clause was attached as a separate schedule of the agreement for clarity.
If you need tailored support with your reference clause or agreement review, our solicitors can help. For immediate assistance free to employees, call us on 0800 054 1144, or book your settlement agreement advice online for a remote, same-day appointment.
Is my settlement agreement financial offer fair? What should I expect?
Ensuring your financial settlement is fair is just as important as securing a suitable reference. Standard packages may include statutory redundancy, notice pay, outstanding holiday pay, and an ex gratia or goodwill payment. It is crucial to compare the offer with what you might get through a tribunal for unfair dismissal or if you have additional claims such as discrimination or unpaid bonuses.
Some employers offer only the legal minimum, while you might be entitled to more due to your role or circumstances. Our solicitors use benchmarking tools, including our Settlement Agreement Calculator, to check you get the best possible settlement.
Scrutinise each payment listed in your agreement. Errors can occur around tax calculations, omitted benefits, or combined figures hiding notice pay or bonuses.
Compare your offer with results from our Settlement Agreement Calculator or Redundancy Calculator to establish your minimum entitlement. If an offer is below this, our solicitors will negotiate on your behalf for a fairer deal, at no cost to you.
Ex gratia payments, compensation, and PILON explained
Ex gratia payments are discretionary sums paid for you agreeing not to make further claims. These may be tax free up to £30,000. Compensation for redundancy or injury to feelings, where appropriate, may also be included. Payment in lieu of notice (PILON) allows you to leave immediately but is normally taxable as salary and must be separated from ex gratia sums in your agreement.
Careful separation of tax-free and taxable elements is essential, as ex gratia sums wrongly classed can lead to unexpected HMRC tax bills.
A client with a combined PILON and ex gratia payment avoided an unexpected tax deduction after our solicitors negotiated separate itemisation and correct tax treatment for each part, maximising take-home pay.
Checking for withheld bonuses, benefits, and outstanding pay
Look out for missing commissions, share options, bonuses, or accrued holiday. Employers sometimes miss or understate these entitlements. Review your contract, payslips, and HR communications, and ask our solicitors to check the settlement agreement includes all amounts you are owed.
If complex pay schemes are involved, the exact calculation method should be specified in writing to avoid disputes.
Insist on a clause that itemises every component of the total payment—even if your employer claims some are “discretionary”. A clear schedule prevents confusion and protects you from non-payment.
Common negotiation pitfalls employees miss
Neglecting notice pay, restrictive covenants, unclear tax indemnities, or relying on verbal promises are common pitfalls. Reference clauses are also frequently overlooked or left vague. Our solicitors highlight and explain every clause, ensuring you are not left with unexpected restrictions or missed payments.
If your employer pushes for a quick signature or calls any clause “standard”, pause and obtain proper legal advice.
A client nearly lost a £10,000 retention bonus due to vague wording. Our solicitors ensured it was explicitly included in the final agreement schedule, securing the payment.
Tax, notice pay and the £30,000 exemption in settlement agreements
In UK settlement agreements, some payments can be tax-free up to £30,000—such as genuine redundancy pay or ex gratia compensation. Notice pay (PILON), wages, holiday pay, and bonuses are taxable as income. Settlement agreements must clarify how each payment is taxed and identify all taxable and tax-free elements.
Employers deduct tax from taxable sums, but agreement wording can wrongly mix these up. Many agreements include a “tax indemnity” clause, so you could be liable for future tax demands from HMRC—not the employer—if the sums are mislabelled.
For details see the gov.uk guide on tax on termination payments.
Check that your settlement agreement clearly separates tax-free ex gratia and redundancy amounts from taxable notice pay or bonuses. Ask our solicitors to flag and negotiate any overbroad indemnity clauses so you don’t bear the risk of employer payroll mistakes.
What parts of a settlement agreement are tax-free?
Statutory redundancy, genuine ex gratia payments, and some approved injury to feelings payments can be tax-free up to £30,000. Notice pay, holiday, and bonuses are always taxable.
| Payment Type | Tax-Free? Up to £30,000 | Taxable for Income Tax & NI |
|---|---|---|
| Statutory redundancy | Yes | No |
| Ex gratia/compensation | Yes (genuine) | No (over £30,000 taxed) |
| PILON/notice pay | No | Yes |
| Holiday pay | No | Yes |
| Bonus/commission | No | Yes |
A client nearly paid tax on a £20,000 payment until our solicitors confirmed it qualified as tax-free ex gratia, maximising their final sum.
PENP, redundancy pay and treatment of notice periods
Since April 2018, “Post-Employment Notice Pay” (PENP) means all PILON, regardless of employment contract terms, must be taxed as normal income. Redundancy pay usually remains tax free up to the £30,000 limit. Your settlement agreement should show notice periods and redundancy payments separately, to minimise your tax bill.
See official HMRC PENP explanation.
Any lump sum including PILON should be carefully reviewed against HMRC PENP rules. Our solicitors ensure that all breakdowns are accurate, as errors can generate unnecessary tax or HMRC notices.
Key tax indemnities and what to watch out for
Most settlement agreements shift tax risk to employees if HMRC later claims the sums were wrongly defined. An overbroad indemnity clause can leave you exposed for your employer’s mistakes. Limit indemnities so you are only responsible for inaccuracies in your own declarations—not payroll errors or employer misclassification.
A draft agreement from a major employer tried to shift liability for all payroll tax errors onto one client. Our solicitors successfully narrowed the indemnity clause so she was liable only for sums HMRC could prove related solely to her own misstatements.
Key clauses employees often overlook in settlement agreements
Beyond payment and reference clauses, key risks include confidentiality, non-derogatory clauses, restrictive covenants, and hidden indemnities. Overlooking these can create legal and reputational dangers after your exit.
If the reference clause is unclear—about who may respond, or what wording applies—future recruitment can be at risk. Waivers of claims, and restrictions on post-employment actions, may go beyond what is standard or reasonable, especially in circumstances of discrimination, harassment, or whistleblowing.
Insist on a line-by-line review from our solicitors. This is the only way to ensure you are not bound by future restrictions or exposed to ongoing risks due to missed or misunderstood clauses.
Confidentiality and non-derogatory clauses
Settlement agreements usually include confidentiality and non-derogatory clauses. Confidentiality normally restricts you from sharing agreement terms or the circumstances of your exit, but should allow disclosure to family, solicitors, and as required by law. Non-derogatory clauses prohibit both sides from making negative comments about the other.
Ensure these clauses are mutual and clearly identify permitted disclosures.
Our solicitors negotiated modified confidentiality wording for an NHS client, making sure they could talk to future employers and agencies regarding the redundancy, without breaching their agreement.
Restrictive covenants: can your employer limit your future career?
Restrictive covenants may prevent you working for competitors or contacting clients for a period after you leave. Enforceability depends on whether the restrictions are reasonable in duration, geographical scope, and relevance. Courts only uphold necessary restrictions to protect the employer’s interests.
Check any new or extended covenants against your original contract, and never accept broader obligations without compensation.
If the restrictive covenant in your agreement is broader than in your employment contract, challenge it immediately. Our solicitors can negotiate for its reduction or removal.
Indemnities, warranties, and other hidden risks
Watch for indemnity clauses requiring you to cover the employer’s losses or confirm the return of company property. Ambiguous or overreaching warranties can create future liabilities.
Make sure all warranties are specified and reasonable with clear definitions of what you are expected to warrant or indemnify.
One client’s agreement contained a sweeping indemnity for future losses. Our solicitors narrowed its scope to only those losses arising from acts already known or declared during employment.
What to do if your employer breaches the reference clause
If your employer ignores the agreed reference clause, or provides a negative or incomplete reference, you may claim for breach of contract. Quickly gather evidence, notify the employer referencing the exact agreement clause, and request correction. If unresolved, you may claim damages, especially if a job offer is lost.
Our solicitors can contact your former employer directly and resolve most reference disputes rapidly, with legal steps available if necessary. For further information, see the ACAS Code of Practice on Settlement Agreements.
Act promptly if you suspect a breach. A solicitor’s letter referencing the agreement clause usually results in urgent correction by the employer.
If you want your settlement agreement thoroughly checked for common pitfalls or bespoke clauses—including references—call us on 0800 054 1144 or book your settlement agreement advice online for a remote review, paid for by your employer.
The signing process: step-by-step guide to remote, same-day settlement agreement advice
Our solicitors provide a streamlined, remote settlement agreement service for employees in England and Wales. Here’s how the process works:
- Send your draft agreement, contract, and recent payslip to our solicitors.
- We review clauses for legal and financial risks, and prepare tailored advice.
- You receive a confidential advice call—often the same day you submit documents.
- We discuss amendments, answer questions, and, if needed, help negotiate for improvements, including reference wording.
- Once you’re satisfied, our solicitor issues the legal advice certificate, completing the process.
Most settlement agreements are concluded in 1–2 days. Payment follows promptly once all documents are in order.
A client with a new job pending sent us their agreement at 9am, received targeted advice and responses by 10:30am, and had a signed advice certificate with their employer before lunchtime, protecting their rights and new job prospects.
How remote ILA works and what documents you need
Remote advice happens via phone or video. No need to visit our office. Send your draft agreement, employment contract, latest payslip, and any exit correspondence by email. Our solicitors check calculations, reference wording, and identity—giving prompt, fully compliant legal advice.
Prepare your documents in advance. If in doubt, include anything that may relate to pay, benefits, or your employment, as our solicitors will filter what’s needed.
Typical timing and logistics for UK employees
Most agreements are reviewed and signed off within 24 hours of instruction. If your employer has set a deadline, we can usually extend it if negotiation is needed. Payment, once the advice certificate and agreement are returned, should occur within 7–28 days depending on what is specified in the agreement.
A marketing manager contacted us on a Friday lunchtime with an urgent agreement. Our solicitors turned the review around the same day and the client received funds within five working days.
What happens after you sign
After our solicitor provides the advice certificate, your claims are settled. The employer must pay all agreed sums within the time set in your agreement. Keep all paperwork and the agreement for future reference, especially to enforce the reference clause or claim for breach if there is a problem.
If you encounter delays or observe your reference clause has been breached, contact our solicitors for immediate support.
Store all digital and paper copies of your settlement documents together. This simplifies any future enforcement or reference requests.
Why Choose Settlement Agreement Lawyers?
Settlement Agreement Lawyers are specialist, SRA-regulated solicitors for settlement agreements and reference negotiations across England and Wales. Our advice is free for employees—the employer pays our capped fee. We offer rapid, same-day remote reviews, identify and improve unfair clauses, and negotiate better references and higher settlements.
With over 1,400 five-star reviews on Trustpilot, Google, and other review platforms, you can trust us to protect your reputation and maximise your settlement. Our expertise spans redundancy, unfair dismissal, discrimination, and specialist reference clauses. See more success stories.
A technology client faced non-standard reference wording, potential tax errors, and missing commission in their draft agreement. Our solicitors renegotiated terms, secured an improved financial settlement, and a robust reference clause—completed fully remotely.
Frequently Asked Questions About Settlement Agreement References
Can I refuse to sign a settlement agreement if I’m not happy with the reference?
Yes, you do not have to sign the agreement if the reference clause does not meet your needs. You keep all your existing employment rights until everything is agreed. Our solicitors can negotiate improved reference wording on your behalf before you decide whether to sign.
What is the best reference wording to include in a UK settlement agreement?
The ideal wording is clear and strictly factual. It should set out your job title, employment dates, and reason for leaving (if positive, such as redundancy). For full protection, agree the wording in a schedule and require all written and verbal references to follow it.
How do I ensure my manager only gives the agreed reference?
Make it a condition of your settlement agreement that all reference requests—written or verbal—are handled by HR or a named person, using the agreed schedule wording. This approach, drafted by our solicitors, can prevent managers from deviating from or undermining the reference.
What happens if my employer breaches the reference clause after signing?
If your employer provides a reference inconsistent with the agreement, you can claim for breach of contract. Notify them in writing and request a remedy. If not resolved, our solicitors can pursue damages or direct correction—especially if the breach affects your job search.
Can I negotiate a positive reference after redundancy or dismissal in the UK?
Yes. Positive wording is often achievable after redundancy and sometimes following dismissal, especially if not related to misconduct. Our solicitors negotiate bespoke, neutral or positive references in most settlement agreement cases.
What other key clauses should I check before signing a settlement agreement?
You should review clauses on confidentiality, non-derogatory wording, restrictive covenants, tax indemnity, and all payment amounts. Our solicitors provide a comprehensive review to ensure no hidden risks remain before you sign.
Is legal advice mandatory for all UK settlement agreements?
Yes, for any employment settlement agreement to be binding in England and Wales, a solicitor or other qualified adviser must give independent legal advice and provide a certificate, as required under section 203 of the Employment Rights Act 1996. The employer pays for this service.
Does a reference clause apply to both written and verbal future requests?
Only if expressly stated. In most cases, you must require your agreement to apply to all forms of reference, including verbal. Our solicitors make sure your clause covers both types for full protection.
Negotiating a stronger reference as part of your settlement agreement can make a real difference to your future career prospects. UK law entitles you to negotiate clear, binding reference wording for both written and verbal requests, but many employees overlook this opportunity. Our solicitors ensure your terms are fair, your rights are protected, and your reference clause is robust.
The employer pays our fee, so you receive expert, SRA-accredited support at no cost to you. For rapid, same-day solicitor advice across England and Wales, call Settlement Agreement Lawyers on 0800 054 1144 or book your settlement agreement advice online.
